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Changing tack on the Sale of Goods Act

Recent years have seen a number of decisions considering the inclusion of the Sale of Goods Act 1979 (“SOGA”) in maritime contracts. It will be interesting to see whether 2016 brings any further developments on this front!

In November 2015 we reported on the Court of Appeal’s decision in the OW Bunker case, described as “the most spectacular shipping legal imbroglio so far this century”. In addition to the ruling itself, and in an unprecedented move for an arbitration case, the Court of Appeal granted permission to a third party to intervene as an interested party in order to seek to overturn the element of the High Court decision directly impacting it. Our most recent Law-Now on the case can be found here.

This decision follows a year after Michael Hirtenstein & Others v Hill Dickinson LLP [2014] EWHC 2711 (Comm.), variously referred to as Hirtenstein or “Il Sole”, which considered whether the words “as is where is” exclude SOGA implied terms.

Hirtenstein concerned a dispute arising from the purchase of a luxury yacht from property developer Christian Candy on an “as is, where is” basis with no survey or sea trial, but with a personal warranty from the seller as to the yacht’s condition. Within an hour of taking delivery of the yacht, and whilst 12 miles offshore, there was a catastrophic engine failure.

“as she was”

In Hirtenstein, the court considered the case of Dalmare SpA v Union Maritime Limited and Valor Shipping Limited [2012] EQHC 3537 (“Union Power”) – see our Law-Now. The court in Union Powerheld that the words “as she was at the time of inspection” (which were included in the Norwegian Saleform (NSF) 93) created an obligation to deliver the vessel in the condition she was in at the time of inspection but importantly did not exclude the implied terms of satisfactory quality under the SOGA.

The court opined that, had the words “as is where is” been included, they would not necessarily have excluded the SOGA implied terms. A provisional view was expressed by the court that, where a contract requires a buyer to take a vessel “as is where is”, the buyer could not reject the vessel on the grounds of breach of an implied term but instead could claim damages for breach of that implied term.

The conclusion from Union Power therefore was that express wording was needed where the implied terms of the SOGA were to be excluded. This was greeted with some surprise by the shipping industry.

“as is, where is”

In contrast, all parties in the Hirtenstein case appeared to understand the purpose of the inclusion of “as is, where is” i.e. that the ship was purchased in the condition she was in and there would be no right against the seller in respect of faults discovered after delivery of the vessel. The court viewed the phrase “as is, where is” as something which is entirely self-explanatory:

“It clearly signified that the buyer would acquire the Yacht in whatever condition the boat was at the time of purchase with no right to complain subsequently if the boat should turn out to have any defect.”

The court in Hirtenstein was of the opinion that the decision in Union Power was too generous to the purchaser, and that treating “as is, where is” as excluding the right to reject the vessel but not excluding the right to claim damages for breach of implied terms was not something which was likely to reflect “expectations of ordinary business people”. The judge further stated that:

“Drawing such a distinction… seems to me most unlikely to… be an interpretation that would occur to anyone other than an ingenious lawyer”.

going forward…

Neither of these opinions are binding but it is expected that further litigation on the point will take place. Until then, problems may be avoided through the express exclusion / inclusion of the statutorily implied terms of quality and fitness for purpose, particularly where using NSF 93, or adoption of an entire agreement clause as contained in NSF 2012. An explicit exclusion of warranties, depending on the circumstances of the transaction, may also be advisable.